BENEFIT claimants are facing a ban on buying booze, cigarettes or drugs with their handouts if a crackdown gets the go-ahead.

Regulated smart cards could be introduced by the Government to prevent claimants squandering their handouts.

Work and Pensions Secretary Iain Duncan Smith admitted he was “looking at this process” to see how a welfare card – which can only be used to buy certain items – would work in practice.

He said the Australian-style system could be suitable for people such as addicts for whom receiving cash “can lead to further problems”.

For people with a history of serious drug abuse, giving them cash can sometimes lead to further problems

Work and Pensions Secretary Iain Duncan Smith

But he later indicated he did not yet back proposals from Tory MP Alec Shelbrooke who suggested this week that all claimants should have cards that stopped them spending their benefits on “luxuries” such as alcohol, cigarettes and satellite TV.

Earlier this year, Mr Duncan Smith told party activists he was considering whether the law could be changed to specify how claimants spend benefits.

Yesterday, he suggested he was still pondering the idea – which critics warn willfurther demonise claimants – although he stressed there were no immediate plans drawn up to introduce it.

“I have been looking at this process to figure out whether it is feasible, how would it work, how does it match with legal obligations,” he said.

“I genuinely think there are some areas where we might want to think about it – somebody who has a history of serious drug addiction, where giving people cash sometimes can lead to further problems.”

Mr Shelbrooke told the Commons those receiving payments should be given a welfare card which would work like a chip and pin debit card. It would not work if claimants tried to use it to buy alcohol and cigarettes, he said.

Mr Shelbrooke, the MP for Elmet and Rothwell, said the plan would end the “damaging perception” that those who claimed benefits were scroungers, sponging off the state.

Proposing his Welfare Cash Card Bill, Mr Shelbrooke said the changes would “encourage responsible spending” among claimants, adding it would ensure taxpayers’ money was spent “wisely” and “for the purpose for which it was intended”.

He said: “This would alter the spending habits of a minority who prefer to take advantage of the system, getting something for nothing.

“The something-for-nothing culture encouraged by the previous Labour government, created a two-tier benefits system where striving low-paid workers have been penalised for the idleness of the shirkers.”

He added: “Introducing a welfare cash card on which benefits will be paid, claimants will only be able to make priority payments such as food, clothing, energy, travel and housing.

“The purchase of luxury goods such as cigarettes, alcohol, Sky TV and gambling will be prohibited.”

Earlier this year officials were said to be considering issuing cards to as many as 120,000 “problem families”.

Aides said yesterday the smart cards were not currently being considered for implementation but sources have said the issue is very much on the agenda.

The Government yesterday set the scene for a clash with Labour over Chancellor George Osborne’s plan to limit most working age benefit rises to a below-inflation one per cent for the next three years.

The Welfare Benefits Uprating Bill was published in Parliament and will face its first big test on January 8 when MPs decide whether it should continue its progress. Pensions Minister Steve Webb stressed pensioners and disabled people had been protected and millions of lower earners have seen their take-home pay boosted thanks to the Coalition’s steady increases in the income tax-free personal allowance.

Labour opposes the one per cent benefit cap, saying low-paid workers on tax credits will suffer the real-terms cut in incomes, not just the unemployed.

Mr Duncan Smith said: “Labour claim they would have reduced the deficit too but they have voted against every single measure to get the deficit down and even against things they say they support like Universal Credit [replacing six key benefits next year].

“They should applaud Universal Credit. It will do more for unemployed people than anything that has happened since the advent of the welfare system.”